Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(Mark One)
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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For the quarterly year ended March 31, 2014
OR
o
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TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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For the transition period from ___________________________ to ___________________________
Commission file number 000-29483
Pacific Sands, Inc.
(Exact Name of Registrant as specified in its charter)
Nevada
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88-0322882
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(State or Other Jurisdiction of Incorporation or Organization)
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(IRS Employer Identification No.)
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4611 Green Bay Road
Kenosha, WI
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53144
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(Address of Principal Executive Offices)
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(Zip Code)
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Issuer’s Telephone Number, Including Area Code: (262) 925-0123
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a larger accelerated filer, an accelerated filer, a non-accelerated or a smaller reporting company. See the definition of “large accelerated filer, accelerated filer and smaller reporting company “in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares outstanding of each of the issuer's classes of common equity, as of May 15, 2014 are as follows:
Class of Securities
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Shares Outstanding
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Common Stock, $0.001 par value
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64,936,354
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EXPLANATORY NOTE
Due to a clerical error.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
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|||
Page
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|||
Item 1.
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Financial Statements
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3
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Balance Sheets as of March 31, 2014 (unaudited) and June 30, 2013
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3
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Statements of Operations for the Three and Nine Months Ended March 31, 2014 and 2013 (unaudited)
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4
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Statements of Cash Flows for the Nine Months Ended March 31, 2014 and 2013 (unaudited)
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5
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Notes to Financial Statements (unaudited)
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7
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||
Item 2.
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Management Discussion and Analysis of Financial Condition and Results of Operations
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15
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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17
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Item 4.
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Controls and Procedures
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17
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PART II OTHER INFORMATION
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|||
Item 1.
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LEGAL PROCEEDINGS
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18
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Item 2.
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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18
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Item 3.
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DEFAULTS UPON SENIOR SECURITIES
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18
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Item 4.
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MINE SAFETY DISCLOSURES
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18
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Item 5.
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OTHER INFORMATION
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18
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Item 6.
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EXHIBITS
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19 | |
SIGNATURES
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20
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EX-31.1 | (Certifications required under Section 302 of the Sarbanes-Oxley Act of 2002) | ||
EX-31.2 | (Certifications required under Section 302 of the Sarbanes-Oxley Act of 2002) | ||
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|||
EX-32.1 | (Certifications required under Section 906 of the Sarbanes-Oxley Act of 2002) | ||
EX-32.2 | (Certifications required under Section 906 of the Sarbanes-Oxley Act of 2002) |
2
PACIFIC SANDS, INC.
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||||||||
BALANCE SHEETS
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||||||||
MARCH 31, 2014 AND JUNE 30, 2013
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||||||||
ASSETS
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||||||||
March 31,
2014
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June 30,
2013
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|||||||
Current assets:
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(Unaudited)
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|||||||
Cash and cash equivalents
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$
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31,818
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$
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90,040
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||||
Trade receivables, net of allowances for doubtful accounts of $11,425
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526,073
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390,839
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||||||
Inventories
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270,641
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180,375
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||||||
Other current assets
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5,794
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12,334
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||||||
Total Current Assets
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834,326
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673,588
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||||||
Property and equipment, net
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206,555
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229,843
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||||||
Other asset
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2,997
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3,525
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||||||
Total Assets
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$
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1,043,878
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$
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906,956
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||||
LIABILITIES AND STOCKHOLDERS' EQUITY
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||||||||
Current liabilities:
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||||||||
Accounts payable
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$
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431,193
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$
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228,104
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||||
Customer deposits
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102,087
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-
|
||||||
Accrued expenses
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38,107
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34,179
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||||||
Deferred rent expenses
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13,200
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26,400
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||||||
Current portion of notes payable and capital leases
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225,826
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258,616
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||||||
Total Current Liabilities
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810,413
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547,299
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||||||
Notes payable - less current portion
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219,795
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266,929
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||||||
Total Liabilities
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1,030,208
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814,228
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||||||
Stockholders' equity
|
||||||||
Common stock, par value $0.001 per share; (100,000,000 shares authorized, 64,616,354 and 64,898,172 shares issued and outstanding, at March 31, 2014, and June 30, 2013, respectively)
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64,616
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64,898
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||||||
Additional paid in capital
|
5,573,818
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5,508,188
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Accumulated deficit
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(5,624,764)
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(5,480,358)
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Total Stockholders' Equity
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13,670
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92,728
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||||||
Total Liabilities and Stockholders' Equity
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$
|
1,043,878
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$
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906,956
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See accompanying notes.
3
PACIFIC SANDS, INC.
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STATEMENTS OF OPERATIONS
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||||||||||||||||
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2014, AND 2013
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||||||||||||||||
(UNAUDITED)
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||||||||||||||||
Three months ended
March 31,
|
Nine months ended
March 31,
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|||||||||||||||
2014
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2013
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2014
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2013
|
|||||||||||||
Net sales
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$
|
781,253
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$
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573,335
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$
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2,046,338
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$
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1,437,330
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||||||||
Cost of sales
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474,931
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366,067
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1,223,961
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847,291
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||||||||||||
Gross profit
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306,322
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207,268
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822,377
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590,039
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||||||||||||
Selling and administrative expenses
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370,434
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234,981
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926,852
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711,714
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||||||||||||
Loss from operations
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(64,112)
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(27,713)
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(104,475)
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(121,675)
|
||||||||||||
Other income (expense)
|
||||||||||||||||
Interest expense
|
(20,973)
|
(8,579)
|
(42,094)
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(23,631)
|
||||||||||||
Other income (expense)
|
1,454
|
179
|
2,163
|
179
|
||||||||||||
Total other expense
|
(19,519)
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(8,400)
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(39,931)
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(23,452)
|
||||||||||||
Loss before income taxes
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(83,631)
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(36,113)
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(144,406)
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(145,127)
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||||||||||||
Income taxes
|
-
|
-
|
-
|
-
|
||||||||||||
Net loss
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$
|
(83,631)
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$
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(36,113)
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$
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(144,406)
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$
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(145,127)
|
||||||||
Loss per share:
|
||||||||||||||||
Basic
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$
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(0.001)
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$
|
(0.001)
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$
|
(0.002)
|
$
|
(0.002)
|
||||||||
Diluted
|
$
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(0.001)
|
$
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(0.001)
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$
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(0.002)
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$
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(0.002)
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||||||||
Weighted average share outstanding:
|
||||||||||||||||
Basic
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64,326,051
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64,470,950
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64,430,687
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63,953,607
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||||||||||||
Diluted
|
64,326,051
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64,470,950
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64,430,687
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63,953,607
|
See accompanying notes.
4
PACIFIC SANDS, INC.
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STATEMENTS OF CASH FLOWS
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||||||||
FOR THE NINE MONTHS ENDED MARCH 31, 2014, AND 2013
|
||||||||
(UNAUDITED)
|
||||||||
2014
|
2013
|
|||||||
Cash flows from operating activities
|
||||||||
Net loss
|
$
|
(144,406)
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$
|
(145,127)
|
||||
Adjustments to reconcile net loss to net cash used in operating activities -
|
||||||||
Depreciation and amortization
|
48,361
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42,613
|
||||||
Stock options
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79,348
|
-
|
||||||
Common shares issued for services and compensation
|
-
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9,809
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||||||
Common shares issued for interest
|
12,000
|
-
|
||||||
Deferred rent
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(13,200)
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(6,000)
|
||||||
Trade accounts receivable
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(135,234)
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(49,848)
|
||||||
Inventories
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(90,266)
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44,084
|
||||||
Other assets
|
7,068
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7,531
|
||||||
Accounts payable and other current liabilities
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309,104
|
60,635
|
||||||
Net Cash Provided by (Used in) Operating Activities
|
72,775
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(36,303)
|
||||||
Cash flows from investing activities
|
||||||||
Purchases of equipment
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(25,073)
|
(108,143)
|
||||||
Net Cash Used in Investing Activities
|
(25,073)
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(108,143)
|
||||||
Cash flows from financing activities
|
||||||||
Proceeds from common stock issued
|
5,000
|
71,000
|
||||||
Proceeds from notes payable
|
220,958
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236,552
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||||||
Repurchase of common stock
|
-
|
-
|
||||||
Repayment of notes payable and long term obligations
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(331,882)
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(183,200)
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||||||
Net Cash Provided by (Used in) Financing Activities
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(105,924)
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124,352
|
||||||
Net decrease in cash and cash equivalents
|
(58,222)
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(20,094)
|
||||||
Cash and cash equivalents:
|
||||||||
Beginning of period
|
90,040
|
57,575
|
||||||
End of period
|
$
|
31,818
|
$
|
37,481
|
See accompanying notes.
5
PACIFIC SANDS, INC.
|
||||||||
STATEMENTS OF CASH FLOWS
|
||||||||
FOR THE NINE MONTHS ENDED MARCH 31, 2014, AND 2013
|
||||||||
(UNAUDITED)
|
||||||||
2014
|
2013
|
|||||||
Supplemental disclosures of cash flow information:
|
||||||||
Cash paid during the period for:
|
||||||||
Interest
|
$
|
29,562
|
$
|
22,680
|
||||
Income taxes
|
$
|
-
|
$
|
-
|
||||
Supplemental disclosure of non-cash financing and investing activities
|
||||||||
Conversion of debt to equity
|
$
|
-
|
$
|
20,000
|
||||
Acquisition of stock for notes payable
|
$
|
31,000
|
$
|
53,852
|
||||
Conversion of accrued professional fees to equity
|
$
|
-
|
$
|
9,809
|
||||
Conversion of interest to equity
|
$
|
12,000
|
$
|
-
|
See accompanying notes.
6
PACIFIC SANDS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Pacific Sands, Inc., have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in Pacific Sands, Inc’s Annual Report filed with the SEC on Form 10-K for the year ended June 30, 2013. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2013 as reported elsewhere in this Form 10-Q have been omitted.
2. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - Pacific Sands, Inc. with the right to do business as Natural Water Technologies (the "Company" or “Pacific Sands”) was incorporated in Nevada on July 7, 1994. Pacific Sands develops, manufactures, markets and sells a range of nontoxic, environmentally friendly cleaning and water-treatment products based on proprietary blended botanical, nontoxic and natural chemical technologies. The Company’s products have applications ranging from water maintenance (spas, swimming pools, fountains, decorative ponds) to cleaning (nontoxic household and industrial) and pet care.
In February of 2008, the Company acquired Natural Choices Home Safe Products, LLC (“Natural Choices”), a developer and manufacturer of environmentally friendly cleaning and laundry products. The acquisition added dozens of new products to the Pacific Sands portfolio of earth, health, pet and kid-friendly offerings, including Oxy-Boost™ an oxygen-bleach based, chlorine-free bleach alternative. The Company now has a large selection of oxygen- bleach based formulations available both for retail distribution under its ecoone®, e-2 elemental earth® and Natural Choices™ brands as well as for contract manufacturing and re-label.
The Company markets and sells its product lines directly, over the Internet and through pool, spa, hardware, specialty and other retail outlets in the US, Canada and Europe. The products are also sold via Pacific Sands distributors, manufacturers’ representatives and internationally established pool and spa industry distribution networks. The Company’s products are also sold through numerous popular pool and spa websites. The Company’s Natural Choices branded products are sold in numerous retail outlets around the country and in Europe as well as dozens of the top environmentally-oriented websites.
Inventories - Inventories are stated at the lower of cost or market on the first-in, first-out (FIFO) basis.
7
PACIFIC SANDS, INC.
NOTES TO FINANCIAL STATEMENTS
Depreciation and Amortization - For financial reporting purposes, depreciation and amortization of property and equipment has been computed over estimated useful lives of two to seven years primarily using the straight-line method. Depreciation and amortization charges totaled $48,361 and $42,613 during the nine months ended March 31, 2014, and 2013, respectively.
Income Taxes - The Company uses the asset and liability method in accounting for income taxes. Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The temporary differences relate primarily to net operating loss carry-forwards and deferred compensation charges. A valuation allowance is recorded for deferred tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized through future operations.
The income tax accounting process for uncertainty in income taxes prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. A company must determine whether it is "more-likely-than-not" that a tax position will be sustained upon examination, including resolution of any related appeals or litigation procedures, based on the technical merits of the position. Once it is determined that a position meets the “more-likely-than-not” recognition threshold, the position is measured to determine the amount of benefit to recognize in the financial statements. Management's review of the Company’s possible tax positions at March 31, 2014, and June 30, 2013, did not result in any positions requiring disclosure. Should the Company need to record interest and/or penalties related to uncertain tax positions, or other tax authority assessments, it would classify such expenses as part of the income tax provision.
The Company’s income tax returns for the years ending June 30, 2011, 2012 and 2013 are subject to examination by the IRS and related states, generally for three years after filed.
Revenue Recognition - Revenue is recognized when the related products are shipped unless the customer is under a “bill and hold” arrangement. Under a “bill and hold” arrangement revenue is recognized when the product is manufactured, invoiced and set aside in a specifically designated finished goods area. Upon invoicing under this arrangement ownership has passed to the buyer with no residual warranty obligation or right of return. All customers under a “bill and hold” arrangement have committed to purchases and have specifically requested they be on a “bill and hold” arrangement. In all cases goods are transferred to a designated finished goods fulfillment location under a fulfillment arrangement and are complete and ready for shipment. These “bill and hold” goods are either privately labeled or set aside exclusively for the customers use.
Customer Deposits – The Company reserves the right to request deposits on product orders. Deposits are requested for new customers or larger-than-normal orders for regular customers. When the Company receives a deposit on a large order then the Company may choose to progress bill for that order.
Accounts Receivable - The Company makes judgments as to the collectability of trade and other accounts receivable based on historic trends and future expectations. Management estimates an allowance for doubtful receivables, which reflects its current assessment of the collectability of the receivables. Management believes that the current specific and general receivable reserves aggregating $11,425 are adequate as of March 31, 2014, and December 31, 2013.
Advertising and Promotional Costs - Advertising and promotion costs are expensed as incurred. During the nine months ended March 31, 2014, and 2013, advertising and promotion costs totaled $58,393 and $60,641, respectively.
8
PACIFIC SANDS, INC.
NOTES TO FINANCIAL STATEMENTS
Basic and Diluted Net Loss Per Share - Basic net loss per share is based upon the weighted average number of common shares outstanding. Dilutive shares related to outstanding convertible promissory notes are not included in the computation of the weighted average number of shares outstanding for dilutive net loss per common share, as the effect would be anti-dilutive.
Use of Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Statement of Cash Flows - For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with an initial maturity of three months or less to be cash equivalents.
Recent Accounting Pronouncements – Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
3. GOING CONCERN
The accompanying financial statements have been presented assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company's assets and the satisfaction of its liabilities in the normal course of business. Through March 31, 2014, the Company has incurred cumulative losses of $5,624,764. The Company's successful transition to attaining profitable operations is dependent upon obtaining financing adequate to fulfill its development, marketing and sales activities and achieving a level of revenues adequate to support the Company's cost structure. Management's plan of operations anticipates that the cash requirements of the Company for the next twelve months will be met by obtaining capital through the sale of common stock, debt financings and from current operations. However, there is no assurance that the Company will be able to fully implement its plan in order to generate the funds needed on a going concern basis.
9
PACIFIC SANDS, INC.
NOTES TO FINANCIAL STATEMENTS
4. INVENTORIES
Inventories at March 31, 2014, and June 30, 2013, consisted of the following:
March 31,
2014
|
June 30,
2013
|
|||||||
Raw materials
|
$
|
206,289
|
$
|
155,531
|
||||
Finished goods
|
64,352
|
24,844
|
||||||
Total
|
$
|
270,641
|
$
|
180,375
|
5. PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2014, and June 30, 2013, consisted of the following:
March 31,
2014
|
June 30,
2013
|
|||||||
Furniture
|
$
|
35,997
|
$
|
32,966
|
||||
Manufacturing equipment
|
209,359
|
193,948
|
||||||
Office Equipment
|
54,435
|
52,706
|
||||||
Leasehold improvements
|
85,320
|
80,650
|
||||||
Computer software
|
52,150
|
51,918
|
||||||
Less accumulated depreciation and amortization
|
(230,706)
|
(182,345)
|
||||||
Property and equipment, net
|
$
|
206,555
|
$
|
229,843
|
10
PACIFIC SANDS, INC.
NOTES TO FINANCIAL STATEMENTS
6. ACCRUED EXPENSES
Accrued expenses at March 31, 2014, and June 30, 2013, consisted of the following:
March 31,
2014
|
June 30,
2013
|
|||||||
Accrued compensation
|
$
|
24,110
|
$
|
19,207
|
||||
Accrued payroll liabilities
|
3,363
|
1,833
|
||||||
Accrued expense
|
6,084
|
3,769
|
||||||
Accrued professional fees
|
-
|
-
|
||||||
Accrued interest
|
4,550
|
9,370
|
||||||
Total
|
$
|
38,107
|
$
|
34,179
|
7. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
Notes payable at March 31, 2014, and June 30, 2013, consisted of the following:
March 31,
2014
|
June 30,
2013
|
|||||||
J.P. Morgan Chase – business line of credit
|
-
|
14,993
|
||||||
Notes payable – stockholder and directors
|
212,000
|
206,344
|
||||||
Promissory note – unrelated party
|
-
|
10,000
|
||||||
Notes payable – former executive officer
|
66,339
|
101,253
|
||||||
Capital lease
|
-
|
3,088
|
||||||
Note payable – related party
|
65,000
|
65,000
|
||||||
Promissory Note – Kenosha Area Business Alliance
|
95,018
|
106,528
|
||||||
Federal payroll taxes payable
|
7,264
|
18,339
|
||||||
445,621
|
525,545
|
|||||||
Less current maturities
|
225,826
|
258,616
|
||||||
$
|
219,795
|
$
|
266,929
|
On March 26th, 2014, the Company issued two notes payable to two private investors. Both notes accrue interest at a rate of 15% per annum and are due in full in 120 days from the date of the note. In addition to interest, each investor received 15% of the note value in legend stock of the Company.
11
PACIFIC SANDS, INC.
NOTES TO FINANCIAL STATEMENTS
The scheduled annual maturities for notes payable and capital lease obligations are as follows for the years ending March 31,
2015
|
$
|
225,826
|
||
2016
|
158,119
|
|||
2017
|
18,229
|
|||
2018
|
19,353
|
|||
2019
|
20,547
|
|||
2020 and thereafter
|
3,547
|
8. STOCKHOLDERS’ DEFICIT
Transactions for the nine months ended March 31, 2014, are as follows:
On August 1, 2013, the Company retired 500,000 shares of common stock for $25,000; a note payable was issued for $25,000.
On December 31, 2013, the Company retired 100,000 shares of common stock for $6,000; a note payable was issued for $6,000.
On March 20, 2014, the Company issued 100,000 shares of common stock to an investor for a cash investment of $5,000.
On March 26, 2014, the Company issued 27,273 shares of common stock to an investor for $1,500 for payment of interest on note payable.
On March 26, 2014, the Company issued 190,909 shares of common stock to an investor for $10,500 for payment of interest on note payable.
9. OPTIONS
For all of the Company’s stock-based compensation plans, the fair value of each grant was estimated at the date of grant using the Black-Scholes option-pricing model. Black-Scholes utilizes assumptions related to volatility, the risk-free interest rate, the dividend yield (which is assumed to be zero, as the Company has not paid cash dividends to date and does not currently expect to pay cash dividends) and the expected term of the option. Expected volatilities utilized in the model are based mainly on the historical volatility of the Company’s stock price over a period commensurate with the expected life of the share option as well as other factors. The risk-free interest rate is derived from the zero-coupon U.S. government issues with a remaining term equal to the expected life at the time of grant.
On November 1st, 2013, the Company granted certain consultants options to purchase 3,174,000 shares of common stock under an agreement at an exercise price of $0.06 per share. Approximately eight (8) percent of the options vest monthly until October 31, 2014. The Company recorded a total expense of $79,347 related to these options during the nine months ended March 31, 2014.
Expected Life (years)
|
10
|
Risk free rate of return
|
2.710 %
|
Dividend yield
|
0
|
Expected volatility
|
262%
|
12
PACIFIC SANDS, INC.
NOTES TO FINANCIAL STATEMENTS
10. LOSS PER SHARE
Basic loss per common share is based on the weighted average number of common shares outstanding in each period and net loss.
The following table sets forth the computation of basic and diluted loss per share.
Three months ended March 31,
|
Nine months ended March 31,
|
|||||||||||||||
2014
|
2013
|
2014
|
2013
|
|||||||||||||
Net loss – basic
|
$ | (83,631 | ) | $ | (36,113 | ) | $ | (144,406 | ) | $ | (145,127 | ) | ||||
Interest expense for conversion of promissory note
|
- | - | - | 2,700 | ||||||||||||
Net loss diluted
|
(86,631 | ) | (36,113 | ) | (144,406 | ) |
(147,827
|
) | ||||||||
Weighted average shares – basic
|
64,326,051 | 64,470,950 | 64,430,687 | 63,953,607 | ||||||||||||
Incremental shares outstanding
|
||||||||||||||||
Assuming the conversion of dilutive
|
||||||||||||||||
Convertible promissory notes
|
||||||||||||||||
Weighted average shares – diluted
|
64,326,051 | 64,470,950 | 64,430,687 | 63,953,607 | ||||||||||||
Loss per share
|
||||||||||||||||
Basic
|
$ | (0.001 | ) | $ | (0.001 | ) | $ | (0.002 | ) | $ | (0.002 | ) | ||||
Diluted
|
$ | (0.001 | ) | $ | (0.001 | ) | $ | (0.002 | ) | $ | (0.002 | ) |
Convertible promissory notes (and related expenses) were not included in the computation of diluted loss per common share for the three- and nine-month periods ended March 31, 2014, since their inclusion would have resulted in an anti-dilutive effect.
Anti-dilutive securities not included in the net loss per share calculation.
13
PACIFIC SANDS, INC.
NOTES TO FINANCIAL STATEMENTS
11. INCOME TAXES
The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting and tax bases of its assets and liabilities. Deferred assets are reduced by a valuation allowance when deemed appropriate.
The tax effects of existing temporary differences that give rise to significant portions of deferred tax assets at March 31, 2014, and June 30, 2013, are as follows:
March 31,
2014
|
June 30,
2013
|
|||||||
Net operating loss carryforwards
|
$
|
1,393,000
|
$
|
1,363,000
|
||||
Deferred compensation
|
28,000
|
43,000
|
||||||
Deferred rent expense
|
6,000
|
11,000
|
||||||
Accounts receivable allowance
|
5,000
|
5,000
|
||||||
Valuation allowance
|
(1,432,000)
|
(1,420,000)
|
||||||
Net deferred tax asset
|
$
|
--
|
$
|
--
|
At March 31, 2014, the Company has net operating loss carry-forwards for Federal tax purposes of approximately $3,317,000 which, if unused to offset future taxable income, will expire in years beginning in 2018.
14
Item 2. Management Discussion and Analysis of Financial Condition and Results of Operation
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN AS THEY ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS CONCERNING FUTURE EVENTS OR FUTURE PERFORMANCE OF THE COMPANY. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH ARE ONLY PREDICTIONS AND SPEAK ONLY AS OF THE DATE HEREOF. FORWARD-LOOKING STATEMENTS USUALLY CONTAIN THE WORDS "ESTIMATE," "ANTICIPATE," "BELIEVE," "EXPECT," OR SIMILAR EXPRESSIONS, AND ARE SUBJECT TO NUMEROUS KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES. IN EVALUATING SUCH STATEMENTS, PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW VARIOUS RISKS AND UNCERTAINTIES IDENTIFIED BELOW, AS WELL AS THE MATTERS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON 10-K FOR THE YEAR ENDED JUNE 30, 2013 AND ITS OTHER SEC FILINGS. THESE RISKS AND UNCERTAINTIES COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED IN THE FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR PUBLICLY ANNOUNCE REVISIONS TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT FUTURE EVENTS OR DEVELOPMENTS.
General
Pacific Sands, Inc. (the "Company" or "Pacific Sands") was incorporated in the State of Nevada on July 7, 1994. The Company's fiscal year ends June 30. The Company is a C-Corporation for federal income tax purposes. The Company does not have subsidiaries or affiliated entities. The Company also does business as Natural Water Technologies, ecoONE Marketing Group and Natural Choices Home Safe Products (see discussion below).
The Company develops, manufactures, markets and sells a range of non-toxic, environmentally friendly cleaning and water-treatment products based on proprietary blended botanical and nontoxic chemical technologies. The Company's products have applications ranging from water installation maintenance (spas, swimming pools, fountains, decorative ponds) to cleaning (non-toxic household and industrial).
The Company has two mature, actively marketed product lines known as ecoONE® and Natural Choices. The ecoONE® line has three components, the ecoONE® Spa Treatment system, ecoONE® Pool Treatment system and the Pacific Sands All-Purpose Hose Filter.
The Natural Choices line offers a variety of environmentally friendly cleaning and laundry products. These products are earth-, health-, pet- and kid-friendly. The Natural Choices line includes Oxy-Boost™, an oxygen-bleach based chlorine free bleach alternative.
The Company has a large selection of oxygen-bleach based formulations available for retail distribution under its ecoONE® and Natural Choices™ brands as well as for contract manufacturing and private label.
The Company markets and sells its product lines directly, over the Internet and through pool, spa, hardware, specialty and other retail outlets in the US, Canada and Europe. The products are also sold via Pacific Sands distributors, manufacturers’ representatives and internationally established pool and spa industry distribution networks. The Company’s products are also sold through numerous popular pool and spa websites. The Company’s Natural Choices branded products are sold in numerous retail outlets around the country and in Europe as well as dozens of the top environmentally-oriented websites.
The Company's goal is to achieve sustained and significant profitability through revenues achieved by marketing and sales of its non-toxic, earth-, health- and kid-friendly, ecoONE® Pool, ecoONE® Spa, Natural Choices household cleaning, Natural Choices Laundry, contract manufacturing and private label sales.
Management believes the Company must continue to provide new and innovative products and branding to the consumer in order to grow its business. Research and product development activities, designed to enable sustained organic growth, continued to carry a high priority during the past fiscal year. While many of the benefits from these efforts will not be realized until future years, management believes these activities demonstrate the Company’s commitment to future growth. The Company has entered into a service agreement with an outside marketing development group in which the outside marketing development group provides the Company with consulting services to assist in enhancing the value of the Company’s current products and facilitate change and innovation for existing and new products branded by the Company.
Management intends to continue the aggressive marketing and sale of its products through direct retail, a widening base of retail outlets, distribution centers and OEM arrangements in order to achieve its goals.
The Company's ability to achieve its objectives is dependent on its ability to sustain and enhance its revenue stream and to continue to raise funds through loans, credit and the private placement of restricted securities until such time as the Company achieves sustained fiscal profitability.
To date, the Company has funded operations through a combination of revenues from the sale of its products, established credit with vendors and the sale of rule 144 stocks through private placement. The Company's failure to continue to raise adequate financing to fund operations may jeopardize its existence. (See “Liquidity and Capital Resources”)
Management knows of no additional trends or uncertainties beyond those discussed that are reasonably likely to have a material impact on the Company's short or long-term liquidity.
15
RESULTS OF OPERATIONS
Results for the three months ending March 31, 2014, compared to the three months ending March 31, 2013.
For the three months ended March 31, 2014, net sales were $781,253, an increase of 36% from net sales of $573,335 for the three months ended March 31, 2013. This increase is due to continuous growth in private label product sales.
For the three months ended March 31, 2014, cost of sales was $474,931 compared to $366,067 for the same period in the previous fiscal year. The Company’s gross margin was 39% for the three months ended March 31, 2014 and 36% for the three months ended March 31, 2013.
For the three months ended March 31, 2014, and 2013, selling and general administrative expenses were $370,434 and $234,981, respectively. The increase in operating expenses is due to investment in marketing and new product development, the addition of a vice president of sales, and the expansion of the Company’s administrative offices including a chief financial officer and an in house accountant.
Interest expense for the three months ended March 31, 2014, was $20,973 compared to $8,579 for the three months ended March 31, 2013. This significant increase reflects the additional debt the Company incurred for market research.
The Company recorded a net loss of $83,631 or $0.001 loss per share for the three months ended March 31, 2014, as compared to a net loss of $36,113 or $0.001 loss per share for the three months ended March 31, 2013.
Results for the nine months ending March 31, 2014 compared to the nine months ending March 31, 2013.
For the nine months ended March 31, 2014, net sales were $2,046,338, an increase of 42% over net sales of $1,437,330 for the nine months ended March 31, 2013. This increase was due to the continuous increase in private label product sales.
For the nine months ended March 31, 2014, cost of sales was $1,223,961 compared to $847,291 for the same period in the previous fiscal year. The Company’s gross margin decreased from 41% for the nine months ended March 31, 2013, to 40% for the current fiscal year to date. The increase in cost of sales is due to the increase in sales revenue and an incremental increase in cost of products.
For the nine months ended March 31, 2014, and 2013, selling and general administrative expenses were $926,852 and $711,714, respectively. This increase is due to the increase in marketing, new product development, and an expansion of the Company’s administrative offices.
Interest expense for the nine months ended March 31, 2014, was $42,094 compared to $23,631 for the nine months ended March 31, 2013. This increase is due to the increase in notes payable to subsidize the cost of new product development.
The company recorded a net loss of $144,406, or $0.002 loss per share for the nine months ended March 31, 2014. This compares to a net loss of $145,127, or $0.002 per share for the nine months ended March 31, 2013.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that the Company is positioned for sales growth but will require additional funding to continue operations. The Company's ability to achieve its objectives is dependent upon its ability to sustain and enhance its current revenue stream and to continue to raise funds through loans, vendor credit and the private placement of restricted securities until such time as the Company sustains fiscal profitability. To date, the Company has funded operations and expansion through a combination of revenues from the sale of its products, established credit with vendors, deferred salaries (subsequently converted to notes payable to officers), debt financings and the sale of rule 144 stock through private placement. The Company's failure to continue to raise adequate financing to fund planned expansion may jeopardize its plans for growth.
16
At March 31, 2014, the Company had net working capital of $23,913 composed of current assets of $834,326 and current liabilities of $810,413. That is compared to the $126,289 at June 30, 2013, when current assets were $673,588 and current liabilities were $547,299.
Net cash provided by operating activities during the nine months ended March 31, 2014, was $72,775, substantially higher than the $36,303 cash used in operating activities during the nine months ended March 31, 2013.
To finance the operating activities for the nine months ending March 31, 2014, the Company issued $5,000 of common stock and used cash provided by operating activities. Cash from operating activities allowed the Company to decrease notes payable, net of principal payments, by $110,924. For the nine months ending March 31, 2013, the Company issued $71,000 of common stock and increased notes payable, net of principal payments, by $53,353 to finance equipment purchases and operating activities.
At June 30, 2013, the Company had a stockholders’ equity of $92,728. At March 31, 2014, the Company had stockholders’ equity of $13,670.
The Company has no “off balance sheet” source of liquidity arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
An investment in the common stock of the Company involves a high degree of risk. In addition to the other information in this report, the following risk factors should be considered carefully in evaluating the Company and its business. This Report contains forward-looking statements. All forward-looking statements are inherently uncertain as they are based on current expectations and assumptions concerning future events or future performance of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. Forward-looking statements usually contain the words "estimate," "anticipate," "believe," "plan," "expect," or similar expressions, and are subject to numerous known and unknown risks and uncertainties. In evaluating such statements, prospective investors should review carefully various risks and uncertainties identified in this report, including the matters set below and in the Company's other SEC filings. These risks and uncertainties could cause the Company's actual results to differ materially from those indicated in the forward-looking statements. The Company undertakes no obligation to update or publicly announce revisions to any forward-looking statements to reflect future events or developments.
THE COMPANY HAS EXPERIENCED LOSSES FROM OPERATIONS SINCE COMMENCING OPERATIONS:
While the Company has not been profitable since commencing operations in 1994, for the quarter ending March 31, 2014, the Company continues to make significant improvements in manufacturing infrastructure and its balance sheet. Sales increased by 42%. Additional investment in sales personnel, advertising and promotions resulted in Selling and Administrative expenses increasing by 30%.
POSSIBLE DIFFICULTY FINANCING PLANNED GROWTH:
The Company's present plans require an amount of expenditure and working capital. In the future, the Company will require financing in addition to the cash generated from operations to fund planned growth. If additional resources are unavailable, the Company may be unable to grow according to its present plan.
MANAGEMENT'S ASSUMPTIONS REGARDING THE FUTURE MARKET MAY BE FAULTY:
Management assumes there will be a continuing and increased desirability in the retail market for nontoxic, environment and health friendly products for cleaning and water treatment use. Should management's assumptions as to this increased desirability be faulty, the Company may have difficulty achieving its planned growth.
THE LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT THE COMPANY:
The Company is run by a small number of key personnel. Should the Company experience a loss of these key people due to their inability or unwillingness to continue in their present positions, the Company's business and financial results could be adversely affected.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based upon an evaluation of the effectiveness of disclosure controls and procedures, our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the SEC and is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Disclosure controls and procedures are defined as those controls and other procedures of an issuer that are designed to ensure that the information required to be disclosed by the issuer in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
17
Changes in Internal Control over Financial Reporting
As reported in our Annual Report on Form 10-K for the year ended June 30, 2013, management is aware that there is a significant deficiency in our internal control over financial reporting. The significant deficiency relates to a lack of segregation of duties due to the small number of employees involvement with general administrative and financial matters. However, management believes that compensating controls are in place to mitigate the risks associated with the lack of segregation of duties. Compensating controls include outsourcing certain financial functions to an independent contractor. Management concluded that internal controls over financial reporting were effective as of June 30, 2013.
There has been significant changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2014, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Accounts payable and receivable functions have been segregated with appropriate oversight. During this quarter a Chief Financial Officer and a full time accountant were hired to provide additional oversight and segregation of responsibilities.
PART II OTHER INFORMATION
Item 1 – LEGAL PROCEEDINGS
None
Item 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
Item 3 – DEFAULTS UPON SENIOR SECURITIES
None
Item 4 – MINE SAFETY DISCLOSURES
None
Item 5 – OTHER INFORMATION
None
18
Item 6 – EXHIBITS
(a)
|
Exhibit Index
|
Exhibit
|
Description of the Exhibit
|
31.1
|
Chief Executive Officer Certification of Periodic Financial Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
31.2
|
Chief Financial Officer Certification of Periodic Financial Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
32.1
|
Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
32.2 | Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101 INS
|
XBRL Instance Document*
|
101 SCH
|
XBRL Schema Document*
|
101 CAL
|
XBRL Calculation Linkbase Document*
|
101 LAB
|
XBRL Labels Linkbase Document*
|
101 PRE
|
XBRL Presentation Linkbase Document*
|
101 DEF
|
XBRL Definition Linkbase Document*
|
* The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
19
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PACIFIC SANDS, INC.
|
||
Dated: May 15, 2014
|
By:
|
/S/ Michael Michie
|
Michael Michie
Chief Executive Officer
|
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PACIFIC SANDS, INC.
|
||
Dated: May 15, 2014
|
By:
|
/s/ Judson Just
|
Judson Just
Chief Financial Officer
|
20